Threat to abolish tax relief got me focused
First-time buyer Rachael Kealy was prompted to buy her Victorian terraced home at O'Connell Avenue, Limerick, when the new Programme for Government threatened to abolish mortgage interest relief
Everyone has advice to give about buying a house these days and boy, do they dole it out. Buy now. Don't, wait. Prices will go up. Prices will go down. Choose variable. Fix your rate. Welcome to the life of a first-time buyer.
There is one incentive to buy however that is unfortunately quite true: the forthcoming loss of mortgage interest relief. This is a tax relief based on the amount of mortgage interest that one pays in a tax year for a principal private residence.
As the monthly repayments are reduced for the first seven years this can be of enormous benefit to first-time buyers, many of whom are in the early stages of their careers.
Take, for example my partner Anthony Gaffney and I, buying our first house together for €300,000, at a variable interest rate of 3.54pc. We could expect to claw back €216.22 per month in interest relief for the first year.
This would certainly help with the ever-mounting moving fees, furniture costs and legal bills that go hand in hand with buying a house.
Just last year the innocuously-titled-but-brutal Finance Act 2010 signalled the end of many tax benefits, including mortgage interest relief.
Now bear with me, this is where it gets confusing. Those who take out a mortgage before December 31, 2011 will continue to qualify for mortgage interest relief at current levels up to the end of 2017. Those who take out mortgages between January 1, 2012 and Dec-ember 31, 2012 will be granted interest relief -- albeit at a lower rate, with reduced amounts of qualified spend -- until the end of 2017. Mortgages taken out after December 31, 2012 will not qualify, and mortgage interest relief will be abolished completely after December 31, 2017. So far, so depressing, right?
However, the cat was thrown amongst the proverbial pigeons with the Programme for Government 2011, which called for the date of abolition of mortgage interest relief to be brought forward to June 2011, a move which has now ostensibly been delayed until Budget 2012. Not before it put me into a blind panic however. This proposition very much influenced our decision to buy as early as possible this year. We deemed the interest relief simply too great a benefit to risk losing.
The Programme also called for an increase of relief to 30pc for those who purchased their properties between 2004 and 2008. This caused quite a furore, with some arguing that it is not for the Government to help those who bought at the height of the market, and others agreeing that something should be done to alleviate the pain for the 'negative equity generation'.
Ireland is not alone in seeking to end mortgage interest relief; the UK withdrew the benefit in 2000 and France has this year abolished it. Among many reasons cited was that the tax relief appears to favour the middle to upper classes rather than universally.
In Ireland, where societal classes -- if they ever existed at all -- have now merged under the shared strain of the recession, one has to doubt if this reasoning holds much weight. It also seems illogical that at a time when the property market needs all the help it can get that two large incentives for first-time buyers are being abolished -- first-time buyer's stamp duty relief and mortgage interest relief.
It remains to be seen what the Government will offer in their place to encourage those of us who still endeavour to take those first tentative steps on to the property ladder.